MONETARY COMMISSION

Greymouth Evening Star, 14 September 1934, Page 7

MONETARY COMMISSION

“MAJORITY” REPORT CRITICISM OF BANKS (Per Ministerial Favour.) WELLINGTON, September 14. The report of the Monetary Committee tabled in the House of Representatives to-day by Mr Coates, reviews the main aspects of the monetary and banking situation of the Dominion, including the institution of the Reserve Bank; it traces the effects of the many schemes put forward and in particular deals with the proposals advanced by Major Douglas and his adherents; in a special section it discusses the exchange rate adjustment and its future.

The report affirms the paramount authority of the State in monetary matters and emphasises that, the serving of the national interests, rather than the quest for profits, should be the motive of the banking system. It condemns the exorbitant rates of interest charged by the Banks on Treasury Bills. These rates were £5 8/9 per cent, and more recently five per . cent, when other Dominion Governments were paying far less, e.g., India 1 per cent., South Africa to 2J per cent., and Australia 2% per cent. The establishment of the Reserve Bank of New Zealand is therefore welcomed. As the State appoints two-thirds of the directorate of the Bank of New Zealand, the State should use its power of appointment to see that profitmaking is subordinated to the end of public welfare. Stock and station agents engaged in deposit and exchange banking should be controlled by the Reserve Bank; the position of other institutions taking deposits should also be considered. Stock and station agents are banking institutions and have in the past materially affected land booms by their competitive activities.

The overdraft for first-class accounts should be reduced to 3S per cent, with a maximum of 5 per cent, for other accounts. This is necessary in present circumstances to assist in the revival of industry and further to reduce overhead charges. The bank charge for keeping accounts should be reduced from £1 to 10/- and the internal exchange on cheques should be reduced, the total reduction being equal to th? relief of note-tax and income-tax owing to the setting up of the Reserve Bank." It may be noted that consequent on the last incraese in note-tax, the banks doubled their bank charge.

The report recommends that the system of bank taxation remain unchanged.

The gold standard is rejected as a basis for the monetary system, especially as New Zealand has evolved away from it. Hence gold reserves should be exported and converted into interest-earning assets.

MORTGAGE BOARD To ensure a unified and consistent lending policy and to bring the monetary system further under centralised control and to eliminate over-lapping, Government Lending Departments should be amalgamated. A Government Mortgage Board should be constituted to take over the long and short term loans which are at present administered by the Lands Department, the State Advances Office and the Rural Intermediate Credit Board. This Mortgage Board should also investigate the possibility of adjusting mortgage charges to farm returns and also ensure an even flow of income to the mortgagee. Mortgage bonds of the long-term amortized type are recommended with interest adjusted to current rates at five-yearly inter, vals. • • A Development Commission or Board of Works should be set up to dovetail Public Works and co-operate with the Government, local authorities and the banking system to mitigate some of the effects of booms and slumps.

EXCHANGE RATE The New Zealand pound should be devalued at the 125 rate in the interests of certainty and economic recovery, but a swing of five points on either side should be permitted in order to control the internal . price structure, the exchange rate being the most potent instrument of control. The Reserve Bank should quote a “forward” exchange rate to safeguard importers. For the purpose of open-market operations, a short term money market should be built up, Reseive Bank Act to be amended to make this more easy to attain. « For cheaper and more efficient financing of production, trade and agncultural bills should be encouraged in place of overdrafts.. MR STEWART’S OPPOSITION The report was not signed by Mr Downie Stewart, who in an. explanatory statement, said that by inf ence it advocated Socialism and socialized banking. Also that the: hostile criticism of the trading banks was mischievous.” He justified the high profits earned by the banks because the State has a one-third holding in the Bank of New Zealand, “and draws a rich revenue therefrom.” He added that the report discusses too manv theoretical schemes, and the remarks on the gold standard are superfluous, nor did he know of any banker who did not fix the rate of exchange on the demand-and-supply principle. His conclusion is that, because of the establishment of the Reserve Bank, it would be unwise to experiment with any new monetary schemes and “it would only create confusion to consider the adoption of other schemes.” “It is not credit that is lacking in New Zealand to-day, but adequate markets overseas.” LABOUR DISSENT. A memorandum of dissent was signed by the Labour members on the Committee and by Captain Rushworth. They state that the non-monetary factors in the depression are a result of the monetary system. They cite the Southampton and London Chambers of Commerce and. the World Economic Conference as stating definitely that the cause of the depression was monetary. They say that since the Royal Mint ceased manufacturing all the money required, a fundamental change has come over the, monetary system in

that money can now be withdrawn from circulation. Because Now Zealand operates on a , sterling base, we are subject to the • policy of the Bank of England and under the control of the Bank of International Settlements. They allege that the associated banks and now , the Reserve Bank are the instruments of the Bank of England. In stating that the Banks create money and also vast debts, the four signatories contend that when advances bring money into circulation it should not create a debt. The amount of money should represent the amount pt real wealth.The recommendations are unified control of the volume of currency and credit, the elimination of private interests and sterling restrictions from the Reserve Bank Act, the creation of apparently non-repayable money for consumers, pensioners, the unemployed, the incapacitated and all producers whose prices do not reach predepression values, monetary policy to aim at stabilising the New Zealand wholesale price level. “Credit expansion to be limited only by the volume of consumable goods produced and desired by the people.” If exchange stability is not otherwise possible, then exchange should be rationed for essential commodities.